Nothing focuses the mind on the need to change like a downturn in business. Such a condition forces companies to change the way they do things. Fortunately, many companies recognize the need for change and indeed implement change before conditions force them to. This offers the advantage of being able to plan the right type of change that will help the business both immediately and in the long term.
If you have the luxury of planning for change, where do you start? This is really dictated by the needs of your customers and your present performance on key business indicators. Perhaps your customers are asking for faster deliveries of your parts. Perhaps they are telling you they can buy the same parts offshore for 25 percent less. Perhaps they are demanding you hold your prices, even when raw material costs are escalating. Facing challenges such as these, you must focus your improvement efforts on areas that will deliver the greatest return in the shortest time frame. This usually means focusing on your highest dollar-volume parts. Dollar-volume is defined as product cost multiplied by annual production volume. Looking at parts in terms of dollar-volume focuses your efforts on the parts that represent a large part of your operating budget each year. A high cost item, made infrequently, does not offer the same improvement potential as a high dollar-volume part. Likewise, a high volume part that has a low production cost may not offer as much improvement potential.
Once you have determined the highest dollar-volume parts, call upon the people directly involved in the manufacture of these parts. Explain the need to change present practices and the reasons for this change (reduce lead time, reduce cost, improve quality and so on). Ask for any ideas these people have, then set out in two directions. The first is to review all material costs; the second is to streamline the production process.
When looking at material cost, consider whether the present buying practices can be improved. It is not just the price paid for material that goes into the overall cost of the purchase. Incidental charges such as shipping, minimum buys, setup charges, tooling charges and payment terms, along with the in-house costs associated with placing and receiving purchase orders, must also be considered in the overall material cost. Will blanket orders give suppliers the ability to offer better prices and deliveries? Can suppliers offer any cost-saving ideas that will ultimately benefit both of you? How much “service” is the supplier able to provide to make things easier for you? Consider all of these things when trying to reduce your material costs.
If your high dollar-volume parts undergo substantially similar manufacturing operations, consider grouping them together and analyzing their manufacturing processes as a whole. Even parts that are not physically similar may undergo the same manufacturing processes and can be analyzed as a “family.” As a first step in analyzing the manufacturing process for a family of parts, list all steps in the manufacturing process (including all those that may not appear on the official routing, but are required to make the part meet the specification) and see which operations can be eliminated. Any non-value added operations (those that create an expense but do not alter the characteristics of a part) are candidates for elimination. After you have eliminated all the non-value added operations, look to combine as many of the value-added operations as possible into a single setup. Combining operations shortens the overall manufacturing cycle time by eliminating all queue times and transportation operations. The shorter the cycle time of a part, the less it is costing you to produce. Improving operations is the next step. This is often the most difficult task in the streamlining procedure and may require a completely different technology that can only be justified with significant production volumes.
Once you have completed the manufacturing analysis and identified potential improvements, it is time to plan and implement those improvements. Will it be necessary to relocate machines? Will new equipment be needed? Is retraining necessary? Will these parts be scheduled in a manner different from the rest of your parts? You will need to address these issues, then test the new process on a limited number of parts before “going live.”
By addressing the highest dollar-volume items, you are approaching change in an orderly manner. Once you have made changes to your highest dollar-volume items, you can look for the next group of parts and repeat the process.